Microloans need macro-mentoring

Very similar to the point I was making with C-BAM

Indeed, the nonprofit research group Innovations for Poverty Action in New Haven, Conn., published a paper in May that found that Peruvian villagers who had received microloans and had been randomly selected to receive business training performed significantly better than peers who had received loans and no financial education.

Canada and Peru are obviously two very different economies, but the point is that capital, be it microloans or big-buck Silicon Valley VC money, isn’t effective in building great businesses and fueling economic growth if there isn’t some sort of mentoring or business education to back it up.

Capital and mentoring are ying and yang, they need to work in harmony to produce a single successful business. The challenge is that while capital is relatively easy and quick to deploy in emerging markets, finding sustained, experienced, and committed mentoring on-the-ground in poor areas is very hard. People with the right knowledge and experience don’t tend to live in poverty-stricken areas. They’ve used their talents to move elsewhere in search of a better life.

In Canada, the need for mentoring is important, but less acute than in emerging markets, and C-BAM provides one easy fix. Canada is obviously a developed capitalist economy and the start-ups we’re dealing with are already staffed with highly educated and sophisticated people, so we’re starting at a huge advantage. Plus there is the benefit of being in a similar timezone as enthusiastic mentors and having ready access to technologies such as TP.

In poor rural areas, the need for mentoring is there in a big way but there is no sustainable, scalable way to provide it. I know for a fact experienced people want to help micro-enterprises and while parachuting experts in from time-to-time may be better then nothing, it isn’t a true fix.

Having spent some time bouncing around emerging markets, I can see what kind of important tool business mentoring is for development. I don’t have an answer here, maybe as internet video technology spreads farther and wider it will be easier to do C-BAM type events.

Small Business - Teaching Business Basics in the Developing World - NYTimes.com

Homegrown Aid

Short but compelling case for bottom-up development, meaning letting poor countries decide for themselves how to allocate development resources.

Make development results-based rather than consultant-based. I'll leave it to Jeffrey Sachs to explain far better than I could:

Rather than have Washington (Penguin: or anyone else) decide the kind of aid each country will receive, the recipient countries should be invited to prepare plans and budgets that would be reviewed by independent experts. These plans would describe the inputs needed by the farmers, the expected increase in production, how the strategy would be put into place and how much money would be required. Such plans, if described with care, could then be closely monitored by the United States and other donors to gauge results and avoid corruption.

Two international programs during the last decade, championed jointly by the United States, other governments and the Gates Foundation, have demonstrated the benefits of such a scientific, results-based aid approach: the Global Alliance for Vaccines and Immunization, and the Global Fund to Fight AIDS, Tuberculosis and Malaria. These programs have saved millions of lives and protected hundreds of millions more from disease and infection. Here’s how they work: Low-income countries submit national action plans to the two programs, which then scrutinize the plans on their scientific, financial and management merits. If the plans are properly put into effect, recipients get more financing.

I would even take it one step farther and in certain cases, only where is makes sense, have outside investors come in to provide either loans or risk capital. When done properly (ie, this is NOT a peanut butter solution that can be spread over every problem) but when done properly, local for-profit entities working on local social problems could benefit from insights and knowledge of outside investors.

Dani Rodrik's weblog: How to invest in Africa, really quickly

Interesting how different ideas around development are coming to the fore. Here is another DIY microfinance through the Center of International Development at Harvard. Actually, I'm more interested in hearing about their plans for the "Empowerment Lab".

Dani Rodrik's weblog: How to invest in Africa, really quickly